Benefit of Sec. 36(1)(vii) available even if sugarcane price fixed by State Govt is more than price fixed by Central Govt

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  • Last Updated on 27 October, 2021

Benefit of Sec. 36(1)(vii) income tax act 1961

Circular 18/2021, dated 25-10-2021

The deduction under section 36(1)(vii) is allowed in respect of expenditure incurred by a cooperative society, which is engaged in the business of manufacture of sugar.
The deduction is allowed for the purchase of sugarcane at a price that is equal to or less than the ‘price fixed or approved by the Government’. The deduction shall be lower of purchase price of the sugarcane or price fixed or approved by the Government.
Recently, the Central Board of Direct Taxes (CBDT) has noticed the issue of treatment of additional payment made by Cooperative society for purchase of sugarcane as an income distribution to farmer members. Thus, the CBDT has issued the clarification after examining the matter.
The CBDT has clarified that the phrase ‘price fixed or approved by the Government’ in section 36(1)(xvii) includes price fixation by State Government through State-level Acts/Orders or other legal instruments that regulate the purchase price for sugarcane. It also includes State Advised Price, which may be higher than the Statutory Minimum price/Fair and remuneration price fixed by Central Government.

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